Can You Take Money Out of a Charitable Trust? Here's What You Need to Know

People often set up charitable trusts to give back-locking away money so it can help others long after they’re gone. But what happens if things change? What if you need cash for yourself, or the charity you picked no longer exists? Can you just take money out of a charitable trust? The short answer: no, not easily, and not for personal use. But there are exceptions, and knowing them could save you from legal trouble or lost opportunities.

What a Charitable Trust Actually Is

A charitable trust is a legal tool that lets you give money or assets to a cause while keeping control over how it’s used. You, the donor, put money into the trust. A trustee manages it. The money can’t be touched by you or your family-it’s meant for charities. The trust can pay out income to beneficiaries for a set time, then give the rest to charity. Or it can give everything to charity right away. Either way, the funds are locked in for public good.

Think of it like a savings account with rules. You can’t just swipe the card. The bank (the trustee) has to follow the terms you wrote when you set it up. And those terms? They’re legally binding.

Why You Can’t Just Withdraw Money

Charitable trusts are built on trust-literally. When you donate to one, you’re making a promise: this money will help others. The law protects that promise. Courts and tax authorities treat charitable assets differently than personal ones. If you could pull money out whenever you wanted, people would use them as tax dodges. That’s why the IRS and Australian Taxation Office (ATO) have strict rules.

In Australia, a charitable trust must be registered with the Australian Charities and Not-for-profits Commission (ACNC). Once registered, it’s subject to ongoing reporting and compliance. Any attempt to redirect funds for personal benefit-like paying off a mortgage or funding a vacation-could trigger penalties, loss of tax benefits, or even criminal charges for breach of fiduciary duty.

When You Might Be Able to Change the Trust

There are rare cases where the rules bend. But they don’t let you take money for yourself. They let you redirect it to another good cause.

1. The charity no longer exists. If the charity you named in the trust closed down or merged, the trustee can apply to the court to change the beneficiary. This is called the cy-près doctrine. The court finds a new charity that matches your original intent. For example, if you left money to a local animal shelter that shut down, the court might redirect it to another animal welfare group in your area.

2. The trust’s purpose became impossible or impractical. Say you set up a trust to fund a specific research project that was completed years ago, and the funds are still sitting there. The trustee can petition the court to modify the terms. Again, the goal isn’t to give you cash-it’s to make sure the money still serves a charitable purpose.

3. You set up a revocable trust (very rare). Most charitable trusts are irrevocable by design. But if you created a revocable charitable trust-something you’d need a lawyer to draft specifically-you might have some flexibility. Even then, you can’t just take the money. You’d have to dissolve the trust entirely, which means giving up the tax deductions you already claimed. The ATO will likely audit that decision.

What Happens If You Try to Take Money Anyway?

Some people think, “I gave the money, so it’s mine.” That’s a dangerous assumption. Trustees have a legal duty to protect the trust’s assets. If they let you withdraw funds for personal use, they could be sued. If you pressure them to do it, you could be accused of fraud or undue influence.

There’s a real case from 2023 in Queensland where a donor tried to redirect $200,000 from a charitable trust to pay for his daughter’s private school fees. The court ruled the funds must stay in the trust and be given to a different youth education charity. The donor had to pay legal fees and lost his tax deduction for the year he claimed the donation.

Penalties aren’t just financial. The ATO can revoke the trust’s charitable status. That means future donations won’t be tax-deductible. The public record will show the trust was misused. That hurts the whole nonprofit sector’s credibility.

Alternatives If You Need Access to Funds

If you’re worried about tying up your money in a charitable trust, here are better options:

• Donor-Advised Fund (DAF): You donate to a DAF, get an immediate tax deduction, and recommend grants to charities over time. You can even pause giving if you need cash. The money stays in the fund, but you control where it goes.
• Charitable gift annuity: You give money to a charity and get fixed payments for life. When you pass, the rest goes to charity. You get income now, and the charity gets the remainder.
• Private foundation: If you have a lot of money, you can set up your own foundation. You control the grants, but you still can’t take the money for yourself. You can pay yourself a salary as a staff member, though.

These options give you flexibility without breaking the law. They’re designed for people who want to help-but also want to keep some control.

What You Should Do Before Setting Up a Trust

If you’re thinking about creating a charitable trust, talk to a lawyer who specializes in estate planning and nonprofit law. Don’t rely on online templates. Here’s what to ask:

• Can I change the charity later if needed?
• What happens if the charity closes?
• Will I still get my tax deduction if I can’t access the funds?
• Are there alternatives that give me more flexibility?

Also, think long-term. Will the charity still exist in 20 years? Is the cause still relevant? A trust set up in 2010 to fund landline phone access for seniors wouldn’t make sense today.

Final Reality Check

You can’t take money out of a charitable trust for yourself. That’s not a loophole-it’s the whole point. The system exists to protect donors, charities, and the public from misuse. If you need personal access to your money, don’t put it in a charitable trust. Use a donor-advised fund, a savings account, or another financial tool that lets you withdraw funds when needed.

Charitable trusts are powerful. They can support causes for generations. But they’re not piggy banks. Treat them like the promise they are-and protect the trust, not just your own needs.